Financial Accounting Review
Questions
Course Introduction
Financial Accounting introduces students to the fundamental concepts and principles governing the preparation, analysis, and interpretation of financial statements for business enterprises. The course covers key topics such as the accounting cycle, recording and summarizing financial transactions, understanding Generally Accepted Accounting Principles (GAAP), and the preparation of essential financial statements including the balance sheet, income statement, and cash flow statement. Emphasis is placed on the role of financial information in decision-making processes across various stakeholders, ensuring students develop the analytical skills necessary for evaluating the financial health and performance of organizations.
Recommended Textbook
Financial and Managerial Accounting 9th Edition by Belverd E. Needles
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29 Chapters
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Page 2
Chapter 1: Uses of Accounting Information and the Financial Statements
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Sample Questions
Q1) Financial accounting information is used primarily by management.
A)True
B)False
Answer: False
Q2) A major function of management is to provide the accountant with relevant and useful information.
A)True
B)False
Answer: False
Q3) The statement of cash flows would disclose the purchase of a building for cash
A) nowhere on the statement.
B) in the operating activities section.
C) in the investing activities section.
D) in the financing activities section.
Answer: C
Q4) Dividends are an example of an expense.
A)True
B)False
Answer: False
Page 3
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Chapter 2: Analyzing Business Transactions
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Sample Questions
Q1) Generally,before Accounts Receivable is debited,it is credited.
A)True
B)False Answer: False
Q2) The most generally accepted value used in accounting is market value.
A)True
B)False Answer: False
Q3) When revenue has been earned,no entry is recorded until the related cash has been collected.
A)True
B)False Answer: False
Q4) In a trial balance,all debits are listed before all credits.
A)True
B)False Answer: False
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Chapter 3: Measuring Business Income
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Sample Questions
Q1) The carrying value of equipment is the estimated dollar amount the equipment could be sold for.
A)True
B)False
Answer: False
Q2) Instead of the word profit,accountants use net income because the latter term can be defined more precisely.
A)True
B)False
Answer: True
Q3) Accounts Receivable was $750 at the end of November and $525 at the end of December.Revenue totaled $4,775 for December.How much cash was received from revenues during December?
A) $6,050
B) $5,000
C) $4,550
D) $3,550
Answer: B
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Page 5
Chapter 3: Supplement - Closing Entries and the Work Sheet
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Sample Questions
Q1) When a company has earned a net income,the net income amount is entered on the work sheet on the
A) credit side of the Income Statement columns and the debit side of the Balance Sheet columns.
B) debit side of both the Income Statement and the Balance Sheet columns.
C) debit side of the Income Statement columns and the credit side of the Balance Sheet columns.
D) credit side of both the Income Statement and the Balance Sheet columns.
Q2) The amount of Retained Earnings for the balance sheet is obtained from the A) statement of retained earnings.
B) Adjusted Trial Balance columns of the work sheet.
C) Balance Sheet columns of the work sheet.
D) Trial Balance columns of the work sheet.
Q3) The process of crossfooting requires vertical addition and subtraction.
A)True
B)False
Q4) The work sheet should be prepared after the formal financial statements have been prepared.
A)True
B)False
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Chapter 4: Financial Reporting and Analysis
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Sample Questions
Q1) Only the chief financial officer and the company's CPAs are responsible for the accuracy of financial statements.The chief executive officer is not expected to understand financial information.
A)True
B)False
Q2) Which of the following appears in different sections of the income statement when prepared on a single-step basis and when prepared on a multistep basis?
A) Sales commissions
B) Office salaries
C) Interest income
D) Sales
Q3) In accounting,$1,000 is considered the dividing line between material and immaterial amounts.
A)True
B)False
Q4) The condensed form of the income statement refers only to the single-step type.
A)True
B)False
Q5) State the definition of a current asset.
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Chapter 5: The Operating Cycle and Merchandising Operations
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Sample Questions
Q1) Using the following information,calculate for 2010 (a)net sales,(b)cost of goods sold,(c)gross margin,and (d)net income.
\(\begin{array}{lr}
\text { Freight-In } & \$ 11,400 \\
\text { Merchandise Inventory, December 31, } 2009 & 130,000 \\
\text { Sales } & 320,000\\
\text { Purchases Returns and Allowances } & 1,600 \\
\text { Advertising Expense } & 18,000 \\
\text { Purchases } & 140,000 \\
\text { Merchandise Inventory, December 31, } 2010 & 110,000 \\
\text { Sales Returns and Allowances } & 11,000 \\
\text { General and Administrative Expenses } & 114,000 \end{array}\)
Q2) Upon making a credit card sale,a business should record the sale as an accounts receivable until the customer pays his or her credit card bill.
A)True
B)False
Q3) Why is the separation of duties an important control activity in a good system of internal control?
Page 8
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Chapter 6: Inventories
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Sample Questions
Q1) Use this information to answer the following question. \(\begin{array}{llll}
\text { Feb. } & 1 & \text { Inventory } & 200 \text { units @ } \$ 6.00 \\
& 6 & \text { Purchase } & 300 \text { units } @ \$ 6.60\\
&13 & \text { Purchase } & 100 \text { units } @ \$ 7.20 \\ &20 & \text { Purchase } & 200 \text { units } @ \$ 7.80 \\ &25 & \text { Purchase } & 40 \text { units @ } \$ 8.40 \\
&&\text { Total sales }& 620 \text { units } \end{array}\)
A periodic inventory system is used.
Using LIFO,the cost assigned to ending inventory is
A) $1,740.
B) $4,056.
C) $1,332.
D) $4,464.
Q2) An overstatement of beginning inventory in a period will result in an overstatement of gross margin in the next period.
A)True
B)False
Q3) Why are cost flow assumptions made when accounting for merchandise inventory?
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Chapter 7: Cash and Receivables
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Sample Questions
Q1) Which of the following would not be considered cash?
A) Postage stamps
B) Checks from customers
C) Money orders from customers
D) Bank deposits
Q2) Debit balances in customer accounts appear on the balance sheet as a current liability.
A)True
B)False
Q3) The general ledger account for Accounts Receivable shows a debit balance of $25,000.Allowance for Uncollectible Accounts has a credit balance of $1,500.Net sales for the year were $250,000.In the past,3 percent of sales have proved uncollectible,and an aging of accounts receivable resulted in an estimate of $10,000 of uncollectible accounts receivable. Using the percentage of net sales method,the Allowance for Uncollectible Accounts balance (after adjustment)would be
A) $7,500.
B) $10,000.
C) $9,000.
D) $6,000.
Q4) What is a compensating balance? By whom is it required?
Page 10
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Chapter 8: Current Liabilities and Fair Value Accounting
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Sample Questions
Q1) When compound interest is used,interest accumulates less quickly than when simple interest is used.
A)True
B)False
Q2) A business accepts a 12 percent,$19,000 note due in three years.Assuming simple interest,how much will the business receive when the note falls due?
A) $21,280
B) $25,840
C) $23,560
D) $19,000
Q3) Which of the following is not a component of the operating cycle?
A) Sales to customers
B) Collection of accounts receivable
C) Recognition of depreciation
D) Purchases from suppliers
Q4) Accrued liabilities often arise as a result of the passage of time.
A)True
B)False
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11
Chapter 9: Long Term Assets
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Sample Questions
Q1) A building was purchased for $230,000.It currently has accumulated depreciation of $40,000 and had a residual value of $50,000.Assuming the use of straight-line depreciation,its estimated useful life must have been
A) 5 years.
B) 10 years.
C) 14 years.
D) impossible to determine from the facts given.
Q2) All of the following are possible reasons for using accelerated depreciation except A) greater efficiency of assets when new.
B) increasing repair costs in later years.
C) rapid changes in technology.
D) increasing use of an asset over the years.
Q3) An on-site building with a twelve-year life will be abandoned after the associated timber tract with a nine-year life is depleted.The building should be depreciated over nine years.
A)True B)False
Q4) Present two arguments in favor of the use of accelerated depreciation.
Q5) What is goodwill and when may it be recorded?
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Chapter 10: Long-Term Liabilities
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Sample Questions
Q1) Suffolk Corporation issued $100,000 of 20-year,6 percent bonds at 98 on one of its semi-annual interest dates.The straight-line method of amortization is to be used.What is the total interest cost of the bonds?
A) $120,000
B) $122,000
C) $118,000
D) $117,500
Q2) The entry to record the issuance of bonds between interest payment dates will include a debit to Bond Interest Expense.
A)True
B)False
Q3) Bond issue costs have the effect of increasing a premium,or reducing a discount,on bonds issued.
A)True
B)False
Q4) Face interest rate is another term for market interest rate.
A)True
B)False
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Chapter 11: Contributed Capital
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Sample Questions
Q1) Beckham Corporation has 3,000 shares of $100 par value,7 percent cumulative preferred stock,and 10,000 shares of $10 par value common stock outstanding during its first five years of operation.Beckham Corporation paid cash dividends as follows: 2006,$9,000; 2007,$0; 2008,$65,000; 2009,$30,000; 2010,$15,000.The amount of dividends in arrears at the end of 2007 was
A) $0.
B) $12,000.
C) $19,000.
D) $33,000.
Q2) The board of directors of Irondale Corporation declared a cash dividend of $2.50 per share on 57,000 shares of common stock on June 14,2010.The dividend is to be paid on July 15,2010,to shareholders of record on July 1,2010.The effects of the entry to record the declaration of the dividend on June 14,2010,are to
A) decrease stockholders' equity and increase liabilities.
B) increase stockholders' equity and increase liabilities.
C) decrease stockholders' equity and decrease assets.
D) increase stockholders' equity and decrease assets.
Q3) Why might someone prefer to invest in a company by purchasing preferred stock rather than common stock?
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Page 14
Chapter 12: Investments
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Sample Questions
Q1) Held-to-maturity securities are valued on the balance sheet at A) original cost.
B) fair value.
C) maturity value.
D) cost, adjusted for the effects of interest.
Q2) Consolidated financial statements are useful because
A) investors of the parent company want a clear financial picture of the total economic entity.
B) minority shareholders need the consolidated information to make good investment decisions.
C) they are much more detailed than the statements for the individual companies.
D) the parent and subsidiaries constitute a single legal entity, and the financial statements should reflect that fact.
Q3) Goodwill is the amount by which specific assets of a subsidiary are undervalued.
A)True
B)False
Q4) When a company receives a dividend from its investee,what will be the effect on the financial statements of the investing company if it uses the equity method?
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Chapter 13: The Corporate Income Statement and the Statement of Stockholders Equity
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Sample Questions
Q1) A small stock dividend normally results in a transfer from Retained Earnings to Contributed Capital of an amount equal to the par value of the stock.
A)True
B)False
Q2) Which of the following items should be classified as an extraordinary item on a corporate income statement?
A) Excess of the selling price over the cost of treasury stock
B) Loss due to takeover of property by a foreign government
C) Gain on the sale of a long-term investment
D) Loss due to discontinued operations
Q3) Which of the following transactions affects total retained earnings?
A) Purchase of treasury stock
B) Payment of previously declared cash dividend
C) Declaration of a stock dividend
D) Declaration of a stock split
Q4) In computing book value per share of common stock,common stock distributable is included in the divisor.
A)True
B)False
16
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Chapter 14: The Statement of Cash Flows
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Sample Questions
Q1) Assume the indirect method is used to compute net cash flows from operating activities.For this item extracted from the financial statements-Decrease in Accounts Payable-indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:
A) Add to net income to arrive at net cash flows from operating activities
B) Subtract from net income to arrive at net cash flows from operating activities
C) Not used to adjust net income to calculate net cash flows from operating activities
Q2) Cash inflows and outflows are not netted in the investing activities section of the statement of cash flows but are separately disclosed to give the reader full information.
A)True
B)False
Q3) Interest expense is one item added to net income as per the income statement to arrive at net cash flows from operating activities.
A)True
B)False
Q4) On the lines below,provide the components for the calculation of free cash flow.
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Page 17
Chapter 15: The Changing Business Environment - a Managers Perspective
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Sample Questions
Q1) Financial accounting comprises all rules governing the accounting for and reporting of financial information that must be disclosed to people outside the company.
A)True
B)False
Q2) Performance measures are used in
A) the "perform" stage of the management process.
B) the "evaluate" stage of the management process.
C) the "communicate" stage of the management process.
D) all stages of the management cycle.
Q3) Management accounting is not a subordinate activity to financial accounting.
A)True
B)False
Q4) Management accounting must observe both financial accounting standards and cost accounting standards if it is to be useful to the organization's management. A)True
B)False
Q5) In a JIT system,materials and parts are not stockpiled.
A)True
B)False
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Chapter 16: Cost Concepts and Cost Allocation
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Sample Questions
Q1) Both indirect materials and indirect labor are overhead costs.
A)True
B)False
Q2) If overhead has been overapplied during the period,the adjusting entry could include a credit to the Cost of Goods Sold account.
A)True
B)False
Q3) As actual overhead costs are incurred,the Overhead account is debited.
A)True
B)False
Q4) The Overhead account is used to accumulate actual overhead costs.
A)True
B)False
Q5) The product is the cost object when assigning indirect product costs.
A)True
B)False
Q6) Period cost and product cost are synonymous terms.
A)True
B)False
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Chapter 17: Costing Systems- Job Order Costing
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Sample Questions
Q1) To prepare financial statements at the end of the accounting period,the actual overhead cost for the period and the estimated overhead that was applied during the period must be reconciled in a job order costing system.
A)True
B)False
Q2) The basic document for keeping track of costs in a job order costing system is a
A) job order cost card.
B) labor time card.
C) process cost report.
D) materials requisition form.
Q3) In a job order costing system,a separate job order cost card is used for each individual job.
A)True
B)False
Q4) In a job order costing system,indirect labor costs incurred are charged to the Work in Process Inventory account.
A)True
B)False
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Page 20
Chapter 18: Costing Systems- Process Costing
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Sample Questions
Q1) The FIFO costing method is a costing method in which the cost flow follows the logical product flow.
A)True
B)False
Q2) Conversion costs per equivalent unit will be same under both FIFO and average costing methods.
A)True
B)False
Q3) A process costing system is used by companies that manufacture large amounts of similar products or liquid products.
A)True
B)False
Q4) Measures of equivalent production are necessary in process costing because A) job order costing procedures cannot be applied.
B) unit costs are computed by departments or processes at fixed time intervals. C) perpetual inventories are not employed in process plants.
D) production methods are more complex than in job order costing systems.
Q5) In a process costing system,all production costs are assigned to departments.
A)True
B)False
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Chapter 19: Value-Based Systems- Abm and Lean
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Q1) Comparing activity-based management (ABM)and lean operations,all of the following are correct except
A) both identify value-adding and nonvalue-adding activities.
B) ABM uses a more complex accounting system.
C) both are activity-based systems.
D) JIT focuses on the accuracy of cost assignment.
Q2) For a manufacturer,the final customer is part of the supply chain and customer service is part of the value chain.
A)True
B)False
Q3) According to the just-in-time philosophy,
A) maintaining inventories wastes resources and frequently covers up poor work or other problems.
B) push-through manufacturing flows are the most efficient.
C) inventories of finished goods should always be available to meet customer demand.
D) long production runs and large production lot sizes take advantage of economies of scale.
Q4) Why is process value analysis not part of the general ledger accounting system?
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Page 22
Chapter 20: Cost Behavior Analysis
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Q1) The objective of breakeven analysis is to find the level of activity at which sales revenue equals the sum of all variable and fixed costs. A)True B)False
Q2) Lakeside has gathered the following data in order to calculate the weighted-average contribution margin: \[\begin{array} { r r r r } & \text { Unit Salas Price } & \text { Unit Variable Costs } & \text { Unit Sales } \\ \text { Product A } & \$ 150 & \$ 100 & 8,000 \\ \text { Product B } & 100 & 60 & 2,000 \end{array}\]
Fixed costs are $480,000.
The weighted-average breakeven point is
A) 11,429 units.
B) 10,000 units. C) 5,333 units.
D) 10,667 units.
Q3) Is breakeven analysis a tool that can be used for a service-oriented business? Explain your answer.
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Chapter 21: The Budgeting Process
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Sample Questions
Q1) XYZ Company expects to sell 37,000 units of its product in the coming year.Each unit sells for $45.Sales brochures and supplies for the year are expected to cost $7,000.Three sales representatives cover the Southeast region.Each one's base salary is $25,000,and each earns a sales commission of 5 percent of the selling price of the units he or she sells.The sales representatives supply their own transportation; they are reimbursed for travel at a rate of $0.40 per mile.The company estimates that the sales representatives will drive a total of 75,000 miles next year.From the information provided,calculate XYZ Company's budgeted selling expenses for the coming year.
A) $195,250
B) $145,250
C) $120,250
D) $83,250
Q2) Which budgets must managers prepare before they can prepare a direct materials purchases budget?
A) Labor budget
B) Overhead budget
C) Production budget
D) Cost of goods manufactured budget
Q3) Describe three benefits budgeting provides to an organization's success.
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Page 24
Chapter 22: Performance Management and Evaluation
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Sample Questions
Q1) By balancing all stakeholders' needs,managers are more likely to achieve their objectives in
A) the long term.
B) the short term.
C) the short term as well as the long term.
D) all areas of the organization.
Q2) Identify and describe the five different responsibility centers,and provide one example of each.
Q3) A variable costing income statement is essentially the same as a traditional income statement.
A)True
B)False
Q4) The manager of Center C is responsible for the online order operations of a large retailer.What type of responsibility center is Center C?
A) Discretionary cost center
B) Profit center
C) Revenue center
D) Investment center
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Chapter 23: Standard Costing and Variance Analysis
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Q1) Service organizations use direct materials,direct labor,and overhead standard costs.
A)True
B)False
Q2) A direct labor rate variance would occur in which of the following situations?
A) When a production employee takes an unplanned break
B) When a production employee spends more time producing one product than was expected
C) When a low-paid production employee performs a task higher than his or her assigned level
D) When a production employee incurs overtime hours at the same hourly rate as regular pay
Q3) The use of realistic predetermined unit costs to facilitate product costing,cost control,cost flow,and inventory valuation is a description of the A) flexible budget concept.
B) budgetary control concept.
C) capacity level concept.
D) standard cost accounting concept.
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26
Chapter 24: Short Run Decision Analysis
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Q1) The difference in total costs between two alternatives is referred to as the
A) incremental cost.
B) sunk cost.
C) opportunity cost.
D) direct cost.
Q2) Outsourcing production or operating activities does not help in reducing a company's investment in physical assets and human resources.
A)True
B)False
Q3) Segment profitability analysis includes the preparation of a segmented income statement.
A)True
B)False
Q4) Sales mix decisions should be based on the contribution margin per unit of scarce resource.
A)True
B)False
Q5) What two criteria must be met for information to be considered relevant to decision making?
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Chapter 25: Capital Investment Analysis
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Q1) The expected life,estimated cash flow and investment cost are the three methods used in the evaluation of capital investment proposals.
A)True
B)False
Q2) The proposals that will produce poor returns will have a positive impact on the organization's profitability.
A)True
B)False
Q3) With regard to the time value of money,
A) amounts are adjusted for inflation over the period of the investment.
B) the amount of the present value is always higher than the future value.
C) the future value amount is always higher than the present value amount.
D) the present value and the future value have to be equal.
Q4) Discounting calculates the __________ value of an amount to be received.
A) future
B) compounded
C) present
D) book
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Chapter 26: Pricing Decisions,incltarget Costing and Transfer Pricing
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Q1) Within the relevant range,fixed and variable costs are fairly predictable. A)True
B)False
Q2) When making the decision on a product's price,the manager must consider
A) all products at the same time.
B) the minimum price that will produce a profit.
C) only cost-based information.
D) the product's total variable costs.
Q3) For service-oriented businesses,pricing is determined using cost-based approaches that add the cost of overhead to materials,parts,and labor via markup percentages.
A)True
B)False
Q4) A set of rules similar to those used to set external prices governs the establishment of transfer prices.
A)True
B)False
Q5) Both internal and external factors can influence the pricing decision.
A)True
B)False
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Chapter 27: Quality Management and Measurement
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Q1) Though focus on quality is considered a modern management issue,the Deming Application Prize actually originated in 1951.
A)True
B)False
Q2) The organization that promotes improvement in quality worldwide is called the International Organization for Standardization.
A)True
B)False
Q3) Benchmarking and process mapping are two methods to measure quality.
A)True
B)False
Q4) CAD is
A) a cost allocating decision.
B) computer aided downtime.
C) a computer-based engineering system.
D) an organizational environment.
Q5) The Six Sigma quality standard was used by Motorola to improve its performance. A)True
B)False
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Chapter 28: Financial Analysis of Performance
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Sample Questions
Q1) Which of the following describes the interest coverage ratio?
A) Income before income taxes plus interest expense divided by interest expense
B) Income after income taxes plus interest expense divided by interest expense
C) Income after income taxes divided by interest expense
D) Income before income taxes minus interest expense divided by interest expense
Q2) Inventory turnover is a measure of liquidity that focuses on the relative size of inventory.
A)True
B)False
Q3) In a common-size financial statement,which of the following is given a designation of 100 percent?
A) Cost of goods sold
B) Total assets
C) Total liabilities
D) Net income
Q4) Horizontal analysis will reveal the percentage of net sales consumed by salaries expense.
A)True
B)False
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